Chinese officials shrug off concerns over slowdown

LiYuan

DAVOS, Switzerland--Two days before the annual World Economic Forum started, China announced its lowest growth rate in 24 years. Yet Chinese policy makers and business leaders at Davos didn't seem too worried about the slowdown.

They believe the hardship brought about by the transition from export- and investment-driven to consumption-driven growth is necessary, though there was some skepticism over whether the leadership will have the political will to carry out the reform.

Chinese Prime Minister Li Keqiang set the tone on Wednesday when he said in a speech that China's economy is entering a "new normal" of slower but healthier growth. He assured that the slowdown won't cause a systemic crisis and the economy won't have a hard landing.

Earlier that day, China's central bank governor, Zhou Xiaochuan, said at a panel organized by The Wall Street Journal that the old growth pattern wasn't sustainable and China was willing to sacrifice a little growth to make its economic expansion more sustainable.

Jack Ma, executive chairman of e-commerce giant Alibaba Group Holding Ltd., agreed with them. He said at a Friday panel that he isn't worried about the slowdown. "If China still keeps 9% growth of the economy, there must be something wrong. You'll never see the blue sky. You'll never see quality. China should pay attention to the quality of the economy." He said he believed industries such as movies and sports will generate better-quality GDP growth.

Several executives pointed to the country's high saving rate--above 50%--as a reason for optimism. Zhang Xin, chief executive of SOHO China, said the high saving rate will give the government a lot of room to stimulate the economy. She expects further interest rate cuts and more stimulus measures in 2015.

Justin Lin, professor at Peking University and former chief economist of World Bank, was probably the most optimistic among the Chinese WEF participants. He was confident China would maintain a growth rate of at least 7% because as a middle-income country it still has a lot of investment opportunities and plenty of capital. "China will continue to be the engine of global growth," he said at a breakfast discussion.

Telecom-equipment maker Huawei Technologies Co.'s founder and CEO, Ren Zhengfei, was equally confident. In a rare public appearance on Thursday, Mr. Ren said much of the slowdown is the result of getting rid of the bubbles and inefficiencies in the economy. He said the Chinese economy will go through a difficult transitional period in 2015 and 2016 but should achieve strong growth in 2017 or 2018.

Shan Weijian, chairman and CEO of Hong Kong-based private-equity firm PAG, echoed Mr. Ren's observation of inefficiency. In 2008, capacity utilization in the U.S. was 78%, he said in an interview. It was 72% in China in 2014. Mr. Shan especially saw a lot of room for improvement in state-owned enterprises, which he described as "massive, dominant and inefficient."

"The reform in SOEs is prerequisite for economic growth," he said. He also said he believed in the growth prospect in industries such as services, retail, food and beverage, health care, pharmaceuticals and e-commerce. He referred to these sectors as the "good economy," with the "bad economy" comprising areas such as steel and glass making, which suffer from huge overcapacity.

A few executives wondered if China would follow the examples of Japan and Europe, which have been unable to carry out the necessary structural reforms to revive their economies. Ms. Zhang of SOHO China said at a panel that to transform China from an investment-driven to a consumption-driven economy, the business community needs lower taxes. "There have been talks about that but nothing has materialized."

Mr. Shan of PAG recalled the pains China went through some 15 years ago when it restructured its SOEs, causing millions of job losses. The process was harsh but paved the way for exuberant economic growth. The success of a reform depends on leaders' resolve to make fundamental changes, Mr. Shan says. "It's always a matter of political will."

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